Who is a franchisee? What is franchising: how to make money with it? What is royalty in a franchise - description of the term

Broker– an independent person acting on behalf of the owner of a ready-made business. A broker is an intermediary between the seller and the buyer. He transfers clients interested in buying a franchise to the seller, charging him a fee for the services. At the same time, clients must independently determine whether they are satisfied with the terms of cooperation with the franchisor.

Franchising or commercial concession agreement– an agreement that reflects the essence of the franchise. The agreement contains information about the organization of a specific type of activity, the specifics of the transferred business, the amount of initial contributions, the rights and obligations of the parties. This document is usually drawn up by the franchisor. It records all the features of the company and the nuances of doing business.

Marketing services- product promotion activities organized by the business owner (franchisor) and regularly paid by the franchisee - in the form of a percentage of gross sales. In some cases, the payment amount may be fixed.

International Franchising Association- global distribution center. It is an independent non-profit organization located in the city of Washington. Engaged in compiling franchise catalogs containing all the necessary information about franchisors and their business concepts.

Franchise package– a franchise package, which includes the services that the franchisee purchases from the copyright holder and the conditions on the basis of which the business is conducted. This includes the brand name, instructions for organizing the business, services and assistance provided by the franchisor, know-how and the payment system. All components of the package are reflected in the commercial concession agreement.

Lump sum payment– a one-time remuneration that the user (franchisee) transfers to the copyright holder company in exchange for a franchise package. This amount serves to reimburse various expenses of the copyright holder, which he is forced to bear in the process of developing a business system, attracting and training franchisees, and then supporting their commercial activities.

On-site support– assistance in doing business that the franchisor provides to the user by meeting him in person or communicating by phone/Internet.

Potential franchisee– an enterprise or individual interested in purchasing a franchise license and planning to engage in franchise business.

Russian Franchising Association is an independent organization that represents and protects the interests of its members. Its goal is to promote franchising in the Russian Federation by creating favorable economic and legal conditions. The association arose in 1997 on the initiative of the largest franchisors in Russia.

Royalty– payments that the franchisee regularly transfers to the franchisor. Most often this is a percentage of sales. However, some franchisors prefer a fixed monthly payment.

– this is compensation for the expenses of the franchisor, who provides assistance to its wards in the development and promotion of the business and organizes research to evaluate its effectiveness. In fact, royalties are the main source of income for the copyright holder company. For this reason, the franchisor is interested in close and effective cooperation with licensees, thanks to which business profitability increases and both parties benefit.

Duration of the franchise agreement– as a rule, it is 5 years, and can be extended if:

the user regularly fulfills all obligations to the copyright holder;
means of production are properly standardized;
The franchisee's activities do not go beyond the limits established by the franchisor.

Extension of the contract may be subject to a fee.

Subfranchisor (master franchisee, master franchisee)- a franchisee who receives from the franchisor exclusive rights to resell the business to third parties - subfranchises. The activities of the subfranchisor are geographically limited. Subfranchising is a practice common in the global economy.

Territory of use of a complex of exclusive rights (Exclusive Territory). As you know, franchising is territorial. The copyright holder allows users to act in a limited area. But if, due to the nature of his activity, the franchisee is forced to move, he receives exclusive rights, which he can use within a specific city or region (that is, a specified administrative unit) for the purpose of business development.

Franchising system often suffers from excessive concentration of franchisees operating in one segment. On the other hand, an increase in the number of licensees leads to their dominance in the market and weakening the position of competitors. Such franchisees can conduct joint marketing activities that bring good profits.

Trademark– a designation that is used to individualize goods and services. Can be verbal, symbolic or a combination. A trademark (brand) is officially registered. The manufacturing company is granted exclusive rights to use it.

Franchisor– a company that grants a small enterprise or individual entrepreneur the right to conduct business on its behalf.

Franchisee- a businessman who, in exchange for a lump sum fee and monthly payments (royalties), receives the rights to use the franchisor’s ready-made business system, subject to compliance with all his requirements and following his instructions for organizing activities.

Franchisees of branch systems- an entrepreneur or organization that acquires from the franchisor the right to commercial activities within a certain territory and manages all retail outlets on its own. An agreement with the FSF usually implies the development of the territory. If the FSF is unable to fulfill this condition, the copyright holder may take appropriate measures.

Franchising– a model of cooperation between the copyright holder and the user, within which the first transfers to the second the right to organize and conduct commercial activities on his behalf, and also provides support and support for the business. This is done in order to promote certain products or services provided by the copyright holder and expand the already known network of enterprises.

Business format franchising– this type of cooperation in which the franchisor gives the user the right to act under his own name and provides him with ready-made solutions for running a business. This is a complex type of franchising.

Franchise– object of the commercial concession agreement; business relations between the parties to the agreement, within the framework of which the franchisee is endowed with a set of rights and technologies, as well as branded attributes. For the use of these benefits, the franchisee must make monthly payments. A franchise is also a name given to a business outlet operated by a franchisee.

Turnkey franchise– a fully equipped retail space transferred to the user under a franchise agreement.

Royalty efficiency– the stage at which the profit from monthly payments transferred by the user to the copyright holder begins to exceed the amount of the franchisor’s expenses to support the franchisee’s activities.

Hello, dear readers! Welcome to the blog!

What does the term franchise mean can be found in Wikipedia, but here I will explain what a franchise is in simple words and with examples. In addition, if you have already begun to think about building your own business, from the article you will find out what is more profitable, starting your business from scratch or opening a franchise business?

From the article you will learn:

3. How much does a franchise cost?

4. Types of franchising.

5. The advantage of opening a franchise business.

9. Summary.

1. What is a franchise in simple words?

In simple words, we can say that a franchise is the rental of developed, proven, streamlined, working business processes.

If you are going to buy a franchise of a well-known brand (become a franchisee), then along with the right to use it, you receive all the instructions on producing the product and running a business, namely: how to hire staff, how to train them, how to work with clients, and so on, everything down to the smallest detail.

You don't need to invent anything, because there is already a ready-made, proven business model that generates income. Naturally, you will need to pay part of the profit to the franchisor (the owner of this franchise) for the fact that you use the business model developed and tested by him and are guaranteed to make a profit.

The franchisee is the buyer of the franchise. The franchisor is the owner and seller of the franchise.

Now, using an example, it will immediately become clear what we are talking about.

2. The most striking example of a franchise is McDonald's.

Do you know that McDonald's restaurants opened in your city, and in almost all cities of the world, operate as franchises?

It is often said that McDonald's is the founder of franchising. Let's take a short excursion into history, or more precisely: into the success story of McDonald's.

The worldwide popularity of the fast food chain was brought not by the creators of the McDonald's restaurant (the McDonald brothers), but by businessman Ray Kroc, who was not very successful at that time. He sold small equipment for making milkshakes to restaurants.

When he entered a roadside restaurant, he was amazed at how quickly people were served and how popular the quick service system was. He got an idea sell franchises of such services under the McDonald's brand all over America. And he addressed this proposal to the brothers.

Ray agreed with the brothers to rent a system for building their business from them in order to subsequently sell it to other businessmen. He paid them money to give him all the hamburger recipes, tell him what equipment they use, how they increase the speed of service, how they train staff and many other secrets with which they built a successful business.

Ray Kroc needed $15,000 and was turned down for a loan, so he had to take a chance and mortgage his house. He was then 52 years old. He wasn't wrong.

Ray Kroc is now a billionaire. There are more than 30,000 McDonald's restaurants in the world.

3. How much does a franchise cost?

What determines the cost of a franchise? From many factors, but mainly:

from brand awareness;
from the territory of distribution of the franchise;
from the term of the contract.

So, how much money will it take to buy a franchise? There are 2 ways to pay the franchise: lump sum and royalties.

When purchasing a franchise, you need to make a lump sum contribution.

A lump sum payment is a one-time payment for the right to use a product, brand, or business model.

There is also a monthly payment - a percentage of turnover. It is not always established; there are franchises with only a one-time payment (lump sum).

Royalty is a monthly payment, it’s like a rental payment for the opportunity to use a well-known brand (usually 5-10% of turnover).

There is another important and large part of the cost when buying a franchise - this is the initial capital.

Initial capital is the amount of investment in a business. From the franchisor you will receive information about how much money you will need to open a point of sale.

Let's consider the components of the cost of a franchise using the example of McDonald's.

How much does a McDonald's franchise cost?

Franchise cost: $45 thousand;
Royalty (monthly payments): from 12% of turnover;
Initial capital: from $1 million;
Contract term: 20 years (renewable).

4. Types of franchising.

Product franchising– this is the right to sell goods of a certain brand. 90% of stores in shopping centers such as H&M, Zara, Baldinini and others are opened under such franchises in the world.

Manufacturing franchising is the right to produce goods of a certain brand. Vivid examples are Pepsi, Coca-Cola and others.

Business franchising– this is the right to open a business in the franchisor’s network. Common in the catering, services, and hotel industries. Examples: McDonald's, Hilton and others.

5. Advantages of starting a franchise business.

According to official data, in the vast majority of countries in the world, franchising is the most popular type of business. Let's figure out why. The answer is simple. You need to look for it in the statistics of the life cycle of opening enterprises. You've most likely heard of this sad statistic.

85% of new businesses go bankrupt within the first 5 years of their existence.

The same figure for franchised businesses is only 15%.

Advantages of starting a franchise business

Brand recognition. Franchises, as a rule, sell well-known, well-promoted, trusted brands.
Fast business promotion. Good revenue will begin to flow literally from the next day the business opens.
Minimum advertising costs. Firstly, the brand itself speaks for itself and does not require advertising. Secondly, the franchisor provides promotional materials and proven advertising methods.
Support and training. You may not have business experience. The franchisor is interested in quickly training you with training programs and courses for effective business management. Reduced business risk. Of course, the possibility of failure exists, but it is minimized, since a proven, effective business technology is used.
In fairness, it is necessary to say about some of the disadvantages of working as a franchise. But they, in my opinion, are insignificant compared to the advantages.

Disadvantages of starting a franchise business

The high cost of some franchises.
Control by the franchisor.
Limiting the franchisee's creativity.

6. Top 50 most profitable franchises in the world.

For many years, it has been included in the top 10 profitable franchises in the world. McDonald's, Subway, KFC and other fast food franchises.

KFC. Number of purchased franchises: more than 14 thousand. Opening cost: $1.3 million - $2.5 million.

McDonald's. Number of franchises purchased: more than 30 thousand. Opening cost: $1.0 million - $2.3 million.

Number of franchises purchased: more than 42 thousand Opening cost: $116,600-$263,200

If you are interested in finding out the full list of the Top 50 most profitable franchises in the world, you can find it in this article The top 50 franchises in the world.

7. 25 most profitable franchises in Russia - 2016 according to Forbes.

ratio of start-up investments and profits;
profit to revenue ratio;
average annual revenue.

You can find a complete list of the 25 most profitable franchises in Russia on the publication’s website Forbes .

8. How to choose the right franchise?

When choosing a franchise, the first thing you need to consider is that you like the business. It is also extremely important to consider the following criteria for choosing a franchise.

Duration of existence of the company. The company's condition is more stable the longer it exists on the market.

The pace of company expansion. The more stores it opens per year, the more successful it is.

Franchise cost. It is important to find a balance between the cost of purchasing a franchise and its reliability.

Franchisor support. Availability of marketing and legal support is the most important criterion.

9. Summary.

Dear readers, you have learned what a franchise is in simple words. With all my heart I wish you to quickly move from theory to practice and start running your own business, which can be started in the following ways:

start your business from scratch (come up with a product, service, business model)
buy a ready-made company
start a franchise business.

But if you don’t yet have the start-up capital to purchase a franchise, you can start with an online business (creating your own blog or website), which requires virtually no investment. You can create and start your website in literally a few days using free instructions, including video instructions, which I have prepared for you in a series of articles on my blog. Here is the link: .

See you soon on the blog pages!
I wish everyone inspiration and confidence in the implementation of their projects!

I think you are already tired of this business topic and therefore I suggest you take a break and watch this rare video, how hippos saved an antelope from certain death.

Hello, dear readers of the “site”! This article will talk about franchising - what it is, what documents the franchisee receives, what types of franchises there are, and what are the advantages and disadvantages of this type of business activity.

After all, this is a good way to start your own business and earn money without having any business experience. The presented publication is useful for absolutely everyone to study (including beginners and successful entrepreneurs).

About what a franchise is in simple words, what is the purpose of franchising in business, what types of franchise businesses are there - read further in our material

1. What is a franchise and franchising in simple words - definition and meaning of terms

First of all, let's look at what a franchise is in simple words.

Franchise(from fr. Franchise- prerogative, advantage) is the object of a franchise agreement, the transfer of a brand and business model to a partner on preferential terms.

Franchising Franchising is a business model in which one company transfers to an individual or another company the right to conduct an identical business under its trademark for an appropriate fee.

Thus , franchise- this is the subject of the transaction, and franchising- the deal itself. Don't confuse these definitions!

The parties to a franchising transaction are called the franchisor and the franchisee. Franchisor - franchise company, franchisee , accordingly, is the party acquiring it.

An excellent example would be KFC restaurant . All cities have this fast food, but the organizers are local entrepreneurs who have opened a franchise business and are making a profit.

2. What is royalty in a franchise + other franchising terms

Besides franchises , franchisor And franchisee there are other specific concepts that you need to be aware of. Let's list them below:

Know-how - information that helps to conduct business and is known only in this organization. Transferred to the franchisee along with the license.
License - a documented right to conduct any business. It acts as an object of franchising along with the brand and know-how.
Franchise agreement may be called license agreement(in case of transfer of intellectual property) or concession agreement. The essence does not change from this.
The main point of such an agreement is lump sum - payment for the purchase of a trademark or a certain stock of goods. The lump sum fee is paid each time the contract is renewed.
In addition to this payment, the franchisor also receives royalties . Royalties in the franchise - This is a regular periodic fee for using the franchise. It can be paid either as a fixed amount or as a percentage of profits. All this is stipulated in the contract and is the main interest of the franchisor along with the lump sum fee.

3. Package of documents that the franchisee receives

The starter kit that the franchisee receives is called franchise package .

This set of documents includes:

regulatory documents governing this type of activity ( licenses, permissions and so on.);
brand book, according to which the retail space is designed;
personnel management policy;
manager's guide.

Besides The franchise package may include various trainings for employees, software, business guides and much more. All these documents are aimed at ensuring that the franchisee understands the corporate spirit of the company as soon as possible and begins to work in accordance with the standards.

Take note! Franchise companies offer their services online. You can get acquainted with their offers, compare conditions and leave a request on special resources.

In addition to the main franchise there is also master franchise - the businessman who bought it remains the sole owner in a certain territory (city, region, region). Naturally, the lump sum fee and royalties will be large, but the entrepreneur’s income will also be higher.

At its core, a franchise is one of the varieties.

4. Pros and cons of a franchise business

Like any business activity, a franchise business has pros (+) And cons (−) .

Positive Parties when purchasing a franchise:

Minimum risk. When buying a franchise, a businessman skips the stage of creation and promotion. This had already been done by the owner before him. Thus, you don’t have to wait for years for profit. And make a mistake in management, incorrectly assess the market situation almost impossible, since the business is regulated by the franchisor.
Promoted brand. The brand already has recognition; it makes no sense to spend money on advertising.
Quickly get your first profit. Since there are no costs associated with opening a new company (such as advertising, rent, etc.), the first profit begins to arrive already in the first month of operation.
Reduced advertising costs. Due to the fact that the company’s trademark has already been “promoted”, the lion’s share of the budget is saved. After all, it is well known that advertising costs spend more than 40 % of profit during the first period of operation of the enterprise.
Opportunity for training and consultations with the franchisor. Not only the franchisee has an interest in the success of the branch, but also the owner of the trademark. Therefore, control and timely correction of errors are present at all stages. Support and assistance are guaranteed to help you reach a successful level of work.

Now about the inevitable negative sides of the concession:

Lack of flexibility for franchisees. It will not be possible to make independent decisions, because the entire process is regulated by the brand seller. To introduce any innovations, they must be agreed upon with the franchisor.
Availability of mandatory payments. Lump sum and royalty, minimum mandatory purchase of goods- the profit received must always be adjusted for these mandatory payments. Whereas a free entrepreneur disposes of the income received at his own discretion.
High transaction cost. Well-known brands charge dearly for their trademark and business model, especially for a master franchise.
Total control by the franchisor. Apart from, perhaps, a free concession, the owner of the trademark will closely control the entire business process. This is not very desirable for experienced entrepreneurs.
Impossibility of changing the current model. Even if your marketing kit is more successful and your work strategy is better, you will not be able to implement them. All processes are strictly regulated.

Thus, before concluding a franchise agreement, it is necessary to evaluate all the pros and cons, and decide which prevails. And then start working.

5. Main types of franchises - 7 types of doing business

Franchising - This business model is so popular in the world that several types of franchises have emerged that have certain characteristics. Let's talk about each in more detail.

Type 1. Free

The most popular type of franchise in Russia. Differs in greater degree of independence franchisee from the franchisor and relatively small ↓ royalties.

Type 2. Classic

The most popular type of franchise involves receiving lump sum And royalties. The franchisor reserves the right to monitor the matter, make amendments and check the franchisee for the identity of the business.

Type 3. Import substitution

In the light of economic sanctions and the import substitution program, the problem of providing consumers with products of European quality, but of Russian origin, has suddenly arisen.

The object of the import substitution franchise is purchase of imported technology, and the production itself is carried out on the territory of the Russian Federation.

Type 4. Silver

It implies the purchase of a ready-made business that does not require additional investments and “promotion”. The brand owner himself opens a division of the company and hands it over turnkey. The royalties here are monthly deductions as a percentage of profits.

Type 5. Corporate

It is distinguished by the active participation of the franchisor in the management of the branch. Suitable for beginner businessmen, as they will have the opportunity to learn management.

The room for maneuver with this type of franchise is small, but the risk of making a mistake is minimized.

Type 6. Business for rent

Renting out a ready-made business, franchisor receives regular income and spends the free time on more interesting projects. Franchisee he uses a ready-made case without wasting time opening it.

In this case, the profit is distributed between the partners in a percentage determined by the agreement ( For example , 50 /50 )

Type 7. Gold

Buying out a monopoly right to do business in any region ( master franchise ). It has high ⇑ rates, but also quickly pays off and brings good profits.

In any case, before investing, you must realistically assess your potential, both monetary and moral. Do you have enough ambition and endurance, can you risk a certain amount?- you decide!

6. Examples of franchises - 5 most popular

In addition to well-known fast food restaurants such as McDonald's or Subway, there are still attractive companies. Let's look at each of them in more detail.

TOP 5 franchise offers in Russia in 2019:

"Pyaterochka" - the most popular chain of grocery supermarkets. More 5 000 stores operate under this brand in Russia. Known for introducing the concept "reverse franchising", that is, there are no royalties, but there are agent's commission for the sale of goods.
33 Penguins – a chain of ice cream parlors that also sells baked goods and desserts. Operates in Russia and the CIS, has 42 own points of sale and 1 700 franchised outlets. Innovation 2016 The year saw the release of a product line for vegetarians, diabetics and healthy lifestyles.
Ascona is the largest manufacturer of mattresses, beds and pillows in Russia and Eastern Europe. 285 franchise points of sale 398 own stores. Holder "Brands of the Year No. 1" V 2011 And 2013 years.
Independent laboratory Invitro is a leader in providing services in the field of medical laboratory research. A high reputation in the franchising field has allowed us to attract more 60 % of franchisees who opened not one office, but two or more.
Champion – a network of football clubs for young children. 261 franchise business and 80 own allow you to reach a large audience of children aged from 3 before 7 years. Franchising is being developed from 2014 years and quite successfully.

All of the listed corporations allow franchisees to earn from 750,000 to 7,500,000 rubles per month .

7. Answers to newbie questions (FAQ)

Question 1. How to choose a franchise for a business?

The main criterion here is the amount you are willing to spend on the purchase. Here is a recommendation: count only on the amount which they are willing to risk .

Having decided on the price category, select several projects that are most attractive to you. Review their franchising policies, branch ownership interests, and product lines. All this information can be easily found in the public domain on the Internet.

The most interesting investment options that will quickly cover start-up costs and bring you profit are:

media business sphere;
organization of public catering;
trade and production of building materials.

Choose the option that is closest in spirit to be fully involved. There is no point in choosing an activity that is not interesting to you. You can discuss the nuances and communicate with consultants directly on the website of the company you are interested in.

Question 2. Is a franchise business suitable for beginners?

Franchises for small businesses are one of the most reliable options conducting business activities.

The risk of failure is practically reduced to zero, because the business has already been established, the brand has been promoted, and control is exercised by the franchisor.

Question 3. What does the cost of a franchise consist of?

The cost of the concession consists of several factors:

brand awareness;
the amount of royalty and lump sum;
on the type of franchise (master franchise is always more expensive);
from the appetites of the brand owner.

Important! The more famous the company, the more branches it has, the more expensive ⇑ the cost of the franchise will be.

Question 4. Are there franchises with minimal investments and is it possible to do without investments at all?

Despite the fact that a business with zero costs and high profitability is blue dream all entrepreneurs, in reality this can not be .

Even when purchasing a branch no lump sum payment You will incur the following expenses:

rental and renovation of premises;
payment of wages;
other organizational expenses.

Don't forget about royalties , which according to the contract is usually 10 % from profit. Of course, the costs will pay off within the first couple of months of effective operation, which is much faster than when building your own company.

8. Conclusion + video material on the topic

As you can see, franchising This is a very attractive way to invest money. A beginner will be able to learn how to conduct business from experienced partners, while making a profit. For business professionals, a franchise is attractive due to its quick payback.

On the pages of the site you will find a lot of useful information.

Perhaps everyone dreams of starting their own business. But, unfortunately, not all small entrepreneurs manage to win the competition and take their place in the sun. That is why more and more businessmen prefer this type of activity as franchising.

What is franchising? This means that you will work under the auspices of an already established large company. But let's talk about everything in more detail. So...

Franchising - what is it?

Due to the saturation of the market and the high level of competition, not every sane entrepreneur will decide to promote a newly created brand. That is why such type of activity as franchising is becoming more and more widespread. Probably everyone knows what rent is. We are accustomed to the fact that this concept refers to property. in this case we are talking about leasing a trademark or brand.

Thus, we can say that franchising is a form of entrepreneurial activity in which large enterprises (franchisors) transfer to businessmen (franchisees) the right to use a trademark under certain conditions and for an agreed amount of remuneration.

All details of cooperation are reflected in the franchising agreement. The main point is the size and procedure for paying royalties. This document may also display conditions and some restrictions regarding the use of the brand and trademark. The amount of the initial contribution is also specified, which is a necessary condition for starting a partnership.

How franchising developed

The development of franchising has a long and quite interesting history. Thus, Singer is considered to be the founder of this type of activity, who, starting in 1851, began to enter into contracts with certain companies, transferring to them the right to sell and service their sewing machines.

By 1920, so-called product franchising began to develop in the United States. It consisted in the fact that large manufacturers organized the sale of their products through large retail chains. In return, sellers received some pricing privileges, as well as the opportunity to use a well-known brand to attract buyers. By the 1930s, this phenomenon had spread to oil refining companies, leading to the formation of large networks of gas stations.

Franchising in its modern form originated in 1945. Then the founder of the McDonald's brand bought several successful restaurants and united them under one brand. Soon the popular network spread throughout the world.

When did franchising appear in Russia?

Franchising in Russia originated in the 90s, when large entrepreneurs began to cooperate with well-known foreign companies. The pioneer in this matter was Planet Hospitality. Well-known companies producing sports uniforms and equipment have become widespread. The first tour operators also came from abroad. In 1997, it was decided to found the Russian Franchising Association.

The most well-known representatives of this area of activity are the fast food restaurant chains McDonald's, Subway and others. Cooperation in the production and sale of clothing and footwear has also become widespread. Unfortunately, moments of crisis and fluctuations in the economy contribute to the departure of foreign representatives from the Russian market.

Agreement

A franchise agreement, in accordance with legislative norms, is called a commercial concession agreement. It implies that one party transfers to the other a certain list of rights to use the trademark for commercial purposes. The document may be indefinite or have a specific end date.

The right to use a trademark may provide for unlimited use of the brand or establish certain limits. It is also worth noting that the contract stipulates some obligations of the parties. In particular, the user is responsible for maintaining the reputation of the company, as well as using its attributes strictly for their intended purpose.

The parties to the agreement may be legal entities or individual entrepreneurs who are registered in the manner prescribed by law.

Types of franchising

Regarding this form of activity, there are several classification methods. According to the most common, the following types of franchising are distinguished:

By field of activity:
- trading (implies the sale of goods of a certain brand with the possibility of using its marketing system);
- service (the franchisee transfers full or partial rights to provide services in accordance with a patented methodology);
- production (the franchisee receives the technology for manufacturing the product for use);
- mixed.
According to know-how:
- distribution (sale of goods or provision of services under a certain brand);
- business format (a business methodology, as well as a marketing concept, is added to the previous paragraph).
By organizing the system:
- direct (direct agreement between the franchisor and franchisee);
- development (the right to open points on the basis of a franchise agreement strictly within a certain territory);
- master (implies almost complete transfer of rights and responsibilities).

Forms

The following main forms of franchising are distinguished:

direct - implies direct contact between the parties to the contract when determining key conditions;
consistent - lies in the fact that the grantee is vested with a number of additional powers;
subfranchising - implies that the franchisee has the right to enter into concession agreements as a copyright holder.

Basic conditions

Franchising is attracting increasing interest among domestic entrepreneurs. Proposals on this issue are quite numerous and tempting. However, when deciding on such a transaction, you must be prepared to meet the following conditions:

you will have to completely submit to the franchisor’s point of view and accept his philosophy regarding doing business;
from the moment you sign the contract, you will be obliged to strictly comply with all its terms (therefore, if you have some comments or suggestions, it is better to discuss them before the transaction is concluded);
you will have to be in constant communication with the franchisor, discussing all key issues with him;
the business management mechanism will be similar to that adopted by the franchisor’s parent company;
you cannot independently turn innovative ideas into reality without a lengthy discussion with the franchisor (and there is no guarantee that you will be given the go-ahead to make changes to the organization of production).

Franchise benefits

Many entrepreneurs have already resorted to this type of activity as franchising. What is the lease of a trademark is generally clear to everyone. But it is also important to know what benefits entering into such a deal can bring you. Thus, franchising is characterized by the following positive aspects:

when starting your own business, you do not have to work out management and production mechanisms, because with the purchase of a franchise you get a well-functioning business system;
despite control by the franchisee, you will have a sufficient degree of both legal and economic freedom;
information about the activities of large companies is often posted in the public domain, and therefore you have the opportunity to familiarize yourself with the activities of your potential partner before concluding a deal;
you will be practically unaffected by the risks that young enterprises often face, because the parent company is already well known in the market;
If you choose the right field of activity in accordance with the needs of consumers, then your business will be successful from the very beginning.

Thus, franchising is an ideal option for your own successful business.

Many entrepreneurs who are looking for an opportunity to start a business from scratch with minimal investment have heard about franchising. At first glance, cooperation in the franchising format seems simple. But it has its own nuances and is associated with certain risks. To really make money from a franchise, you need to become familiar with how it works.

So what is a franchise in simple words? To understand it in detail, you need to familiarize yourself with the basic concepts used in this area.

Franchise

A franchise is a type of agreement in which one company (promoted, well-known) transfers to its partner the rights to use intellectual rights or exclusive technologies. Each franchise has its own characteristics and is provided under different conditions, which are reflected in the contract.

Franchisor

This is a successful company that owns a well-known brand or technology and has a certain business reputation. She transfers the franchise to her partner under certain conditions and for a period clearly specified in the franchise agreement. In this way, the franchisor develops its business, improves it, increases brand awareness and at the same time receives payment for the use of intellectual rights.

Franchising

What is franchising? This is a format of business cooperation based on a franchise. Its essence is the transfer of exclusive rights to intellectual property to a partner for a specific period under the conditions specified in the contract.

Franchisee

A franchisee can be an individual or legal entity who, under a franchise agreement, acquires for a certain period and under certain conditions the right to use the trademark or technology of the copyright holder.

Lump sum payment

A one-time payment to the copyright holder for the opportunity to use a trademark, sign, technology. It is fixed and depends only on the terms of the contract, and not on the amount of benefit received in the future.

Royalty

Payment in favor of the copyright holder, which is transferred regularly throughout the duration of the agreement. The amount can be fixed or calculated as a percentage of the profit received.

How does a franchise work?

Franchising is a specific scheme for doing business. To make money on it, you need to choose a partner and sign an agreement with him. It is concluded for a certain period, after which the parties can either extend the contract or terminate it. The contract clearly states the rights and obligations of the parties. Compliance with the franchisor's directives is not advisory, but mandatory, so before signing it, you need to carefully study each point.

This format of doing business as franchising implies the provision by the copyright holder of not only a business model, technology, but also documentation, legal assistance, information and other comprehensive support.

The franchisor helps organize a business, purchase equipment, hire staff, gives instructions for work, and assigns a separate manager whose task is to help establish the work process.

A franchise business is beneficial for both parties. The franchisor gets the opportunity to earn more and develop the business, increasing brand awareness and making it popular. The franchisee, in turn, can use working business schemes with minimal risks, which involve small investments and guaranteed payback in the shortest possible time.

In the process of franchising evolution, several types of franchises have emerged, which have their own characteristics in terms of cooperation and business. This allows a novice businessman to choose the best option for cooperation.

Classical

This type of franchise has become widespread throughout the world. It is a classic scheme under which the franchisee pays a lump-sum fee and royalties, and the franchisor, in turn, exercises control over the organization and conduct of the business and can make adjustments in order to bring it into compliance with corporate norms and standards. Suitable for a beginner who has little understanding of the specifics of doing business, since the risks of errors will be eliminated by the franchisor.

Free

This scheme is quite popular in Russia. Its distinctive feature is ample opportunities for franchisees. He can conduct business independently at his own discretion, except for the moments specified in the contract. The franchisor practically does not interfere with the partner’s activities. Therefore, the royalty payment under the agreement is also low. This type of franchise is suitable for experienced entrepreneurs who know how to run and develop a business, know its features and are confident in their abilities.

Corporate

This type of franchise is more suitable for inexperienced businessmen. Its peculiarity is that the franchisor takes upon itself almost all the concerns of controlling the activities and development of the business. This is beneficial for beginners, as they have the opportunity to learn how to work, eliminating the possibility of mistakes. This business scheme almost completely eliminates the opportunity for franchisees to express themselves or make changes in management, which is not the main goal for newcomers at this stage.

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